Primark profits jump, City questions growth pace

SCOTT REID

PRIMARK is expected to unveil a marked rise in profits next week but is likely to face questions over whether its meteoric rate of growth can be sustained.

The chain has rapidly become one of the biggest success stories on the high street, with its range of cut-price fashions proving a hit with austerity-bitten consumers.

An update earlier this year from parent group Associated British Foods flagged “excellent” Christmas trading at the discount chain.

Primark’s European sales leapt 14 per cent in the 16 weeks to 4 January, driven by an 8 per cent increase in selling space and more strong improvement at stores which have been trading for more than year.

AB Foods has indicated that the like-for-like growth already achieved meant Primark’s profits would be well ahead of last year.

But Wednesday’s half-year results are also likely to reflect recent pressure on shares from the group’s sugar business.

Its trading update showed that the clothing brand’s strong performance offset a 28 per cent fall in revenues at the sugar business due to a slump in global prices.

The stock came under pressure earlier this month after a profits announcement from a German rival prompted fears about AB Foods’ exposure to the European sugar industry. Shares, at 2,711p, are currently about 12 per cent down on their peak at the start of March.

Analysts at brokerage Jefferies have suggested that broadly flat earnings across the group, which also owns leading food brands Kingsmill, Ryvita and Twinings, will “mask conflicting trends across the divisions”.

“We assume very strong progress at Primark, major profit shortfalls in sugar and solid growth in grocery and ingredients,” they noted.

However, experts at equities broker Redburn voiced doubts about whether the expected pace of the fashion business’s expansion could be sustained, saying space growth “looks unlikely to accelerate materially”.

The City is anticipating underlying earnings at AB Foods of between £495 million and £503m for the period, compared with £496m a year earlier. Primark was founded in Ireland in the late 1960s before expanding throughout its home country and pushing into the UK during the early 1970s. It currently has just over 160 UK stores while expanding into a number of other European markets including Germany, the Netherlands and Spain.

In February, AB Foods said it expected to add some 1.1 million square feet of spelling space this year, well up on the 800,000sq ft achieved in 2013.

Additional stores will include a further three in France, two additional outlets in Germany, and three further UK stores including a relocation in Cardiff.

“As we opened no stores in the second half of last year, these openings will accelerate the 8 per cent selling space growth achieved in the first half,” the group noted. “Capital expenditure for the full year is planned to be ahead of last year.”